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FTC's data broker report: transprency and consumer control

Calling for greater transparency and an increase in consumer control, the Federal Trade Commission has released its report on the data broker industry.

Based on a study of nine data brokers, the FTC’s “Data Brokers: A Call for Transparency and Accountability” report concluded that the industry operates with a “fundamental” lack of transparency and recommended that federal legislation be enacted to regulate data brokers. Consumers should be given greater control over their personal information, the agency said, and it suggested that a centralized portal be created to provide consumer access and the ability to opt out from the use of their data.

While the report did acknowledge some of the benefits provided by the collection and use of consumer data (such as targeted advertising), the FTC said the industry’s control over “vast amounts of consumer information” raised privacy concerns.

“The extent of consumer profiling today means that data brokers often know as much – or even more – about us than our family and friends, including our online and in-store purchases, our political and religious affiliations, our income and socioeconomic status, and more,” Chairwoman Edith Ramirez said in a statement about the report. “It’s time to bring transparency and accountability to bear on this industry on behalf of consumers, many of whom are unaware that data brokers even exist.”

The report documented the size of brokers’ data collections, noting that a single broker held information on more than 1.4 billion consumer transactions, while another adds upwards of 3 billion new data points each month. The report also found that data brokers collect consumer data from both online (social media activity) and offline (magazine subscriptions) sources and often share data with each other.

Much of the data collection is done without consumers’ knowledge, the FTC said. Information is combined and analyzed to make inferences about consumers, “including potentially sensitive inferences” related to their ethnicity, income, religion, or health conditions. Consumers are characterized into groups such as “Rural Everlasting” (single adults over age 66 with low educational attainment) and “Urban Scramble” (low-income Latinos and African-Americans).

The compiled data poses risks to consumers when used for unanticipated reasons, the agency said. For example, “Bike Enthusiasts” could receive offers for discounts on motorcycles but could also be on the receiving end of higher insurance rates because their “risky behavior” has been identified as a result.

Concluding that federal legislation to regulate the industry would improve transparency and consumer control, the report recommended that a “centralized mechanism” be created where data brokers would identify their company and explain their practices to consumers who would be given access to their data and the ability to opt out from its use.

A law should also require data brokers to inform consumers about the inferences they derive from the data and provide consumers with information about their sources and with whom they share their information. Affirmative opt-in consent to collect and share sensitive information – like health data – should also be mandated, the FTC said.

The 110-page report concluded with three best practices for the data broker industry: implement the privacy by design principles set forth in the agency’s consumer privacy report, “implement better measures” to refrain from collecting information from children and teens, and take “reasonable precautions” to ensure that downstream users don’t use data for eligibility determinations or for unlawful discriminatory purposes.

Why it matters: With the data broker industry already under the scrutiny of Sen. Jay Rockefeller (D-W.Va.) and the subject of multiple federal reports (from the Governmental Accountability Office), the FTC report produced few revelations or surprises. However, the call for a federal law builds upon prior demands for industry regulation and could heighten legislative efforts.